Accelerators and incubators are not growth companies

More than a few accelerator or incubator programs have quietly wound down their operations or merged with other programs over the last 6-12 months. This isn’t a surprise. Even with what are essentially successful programs to most, they have a hard time maintaining momentum let alone generate any revenue to sustain themselves. The math is hard to make work.

The upside for all the people involved simply isn’t there in most cases. It takes a huge amount of effort and resources to make a program successful.

I think this highlights two potential issues that many of the organizations that support startups could have.

  1. The program operators start to think like the startups around them and they think they need to grow or scale to help more companies. As a result the things they do are focused on the good of the accelerator instead of the companies in the program.
  2. Incentives are not aligned. Program operators/coaches do not share in the upside of the successful companies. They are instead rewarded for the popularity of a particular program.

They grow. They generate PR. They position themselves as experts on early stage companies. They do all the things they know you should do to build a successful company. When you are around startups all the time there is a tendency to see the world through the lens of the startup – growth, lean, pivots, MVPs, agile, metrics, etc. What they don’t focus on is the companies they are trying to help. All those other things tie up a lot resources.

Achieving optimal effectiveness of a program

I have a theory that the optimal effectiveness (cost vs return) of an accelerator or incubator is at a very small scale. They should provide a service that benefits the founders and the company without PR/Marketing/Events/Space. There is one exception, Y-Combinator. Its scale is huge but I would argue its allowing a lot of waste because the returns are so big and there is a lot of inherent value in the alumni base that offers a ‘fraternity’ type social network.

…and YC started really small. It didn’t have a marketing or communications team. It doesn’t appear to have sought out PR to recruit or host big parties.

There are things that do scale (space to work, creating a big club house full of energy and people, etc) but the effectiveness to truly ‘accelerate’ a business is limited in terms of the ability of the organization to help companies grow faster than they would have without the program. What a program that does space and events may help is to create an ecosystem that is more accessible. It creates an environment were peer mentorship can happen. It is impossible to say whether that would happen naturally or not.

In many cases the community needs a kick start so its great accelerator programs do that.

In all cases the founders need a personal and professional kick start that only very focused coaching can provide. Each founder/company is different as well. There are some general things that can help but nothing is as effective as knowing the people, situations, and having credibility in a given founder/funder network.

Space, club houses, and events are a different business model — it isn’t company acceleration, it is community building.

How to combat this tendency to operate on a growth trajectory is to separate the business operations (space, etc) from the support directly offered to the companies. Keep something totally focused on the companies but don’t hang the success of the business operations on the success of the companies.

What a startup community needs for long term sustainability are local investors that can add more value that just dollars plus are invested in the community. Along with a few other things according to the Boulder Thesis.

If you have a great community with mediocre slow growth companies its hard to argue the investment was anything more than a community development activity.

If you focus on building successful companies the returns will go into the community. That is the optimal return on investment where incentives become aligned – investors (accelerators) see a return, founders gain wins and become investors, early employees gain experience and opportunity.

I do not believe all accelerators should just stop all that other stuff but I think they should be very clear what value they are creating vs capturing (for self promotion). Accelerators should ensure they are on the side of creating value. They need to take the time to know the founders and that is hard to do if they are out promoting their program.

Boltmade – where great software and products are built in Waterloo

For the last 6 months I have been getting to know an exciting new world that is Boltmade — after 15 years in higher education building programs that helps educate entrepreneurs at two of the top schools in the country (U of Waterloo and U of Toronto) it was time to take a pause from higher ed.

Enter Boltmade. Back when TribeHR just received funding we shared a space with a small group of talented people that build high quality software and understand products. They kept growing and would become Boltmade. Over the last year a lot people I have a lot of respect for joined their team. I am excited to work with them!

What am I doing at Boltmade? Doing stuff like bringing back StartupCampWaterloo (next week!) and talking to awesome companies from all over that are looking to have great software built. We are building something really special at Boltmade in Waterloo — the people working on the project own it, we utilize both development and design best practices it takes to build holistic products. We also help you develop processes internally that will result in a long term ability to continue to develop software products inside your organization. We even can help you recruit your team!

That is my favourite part. I know from experience that building a high quality product and team takes a lot of time. At Boltmade we can help a lot of companies grow and succeed… and have a lot of fun doing it!

We are based in Waterloo but our purpose is to help companies inside and outside of the region build bigger badder things.

…and the Boltmade team is growing!

 

StartupCampWaterloo15 – vikings, bikes, baseball, and organizing your time!

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It had almost been a year since StartupCampWaterloo14 and it felt like it was long overdue. The folks at Boltmade opened their office up to StartupCamp so we tried a different venue and stuck to our original format. It was a load of fun!

Thanks to everyone who attended StartupCampWaterloo15! You folks made it a great event. The following is info on who presented.

From my browser history we had:

http://bykme.ca/
https://complice.co
http://millionaire-labs.com
http://scoremorebaseball.com

Others on the whiteboard:

TheBIKEProject – Renish Kamal
Sharebubble – Lucas Cohen
FromTheseRoots – Mic Berman

Also, our new friend from Iceland via Halifax wrote a great post about the Toronto-Waterloo communities. Take a look: http://vikingentrepreneur.com/mars-communitech-and-the-toronto-startup-scene/

Our next event will be in May. It will be warmer.

Creatively Destroying Higher Education: What have I learned?

The Creative Destruction Lab at Rotman, in just over 2 years, went from an idea to something that is having a very positive impact on students and founders in Canada. We focused at the broken market for judgement and how the mentorship structure or processes that existed were not optimized for either side of the market – the mentor/coach and the person being mentored.

It has made a difference in Toronto and Canada.

In the Fall I made a decision to leave the amazing folks at the Rotman School of Management at the University of Toronto. It was a really tough decision as my heart and soul went into building the program but with so many great people supporting it felt like the timing was right. As of January 2015 I am focused on teaching a course for Rotman Commerce and I decided to join the best software/product people I know, anywhere, at Boltmade (that is another post).

When I look back at my time at Rotman there are three big things I learned:

  • Mentorship needs to be managed closely, it isn’t good enough to just have people with successful jobs or titles or experience simply meet with people.
  • The University of Toronto is an important resource to the country, graduate students even more so.
  • There is no single model for supporting entreprenuers that works for every school/community.

Mentorship must be managed

When the CDL was started we looked at mentorship walls incubators and accelerators had (web pages that list dozens of mentors) as something we didn’t want to do. Instead we focused on the G7 Fellows being the only mentors that we were going to focus on because:

  • G7 fellows have built (and exited from) successful companies.
  • Everyone’s time is the limited resource.
  • We wanted to reduce mentor whiplash.

The first point, building successful companies (and exiting), is the qualification that we used to speak to the level of judgement that someone has experienced. Building a company is a roller coaster and reaching a certain milestone (exit) requires both luck and good judgement to win out over the bad. That perspective gained on the journey is invaluable.

The founders that are just starting out and those that have built a $100M+ company share a common constraint on their time. Respecting that constraint and optimizing how time is used is essential. That means keeping the volume of email down, writing specific emails, and having very specific requests. Managing time allows you to sharply focus on what is important.

On founder/mentor whiplash, that is something I have written about before. I strongly believe that my key point on the expertise it takes to educate people. Pretty much every program out there that isn’t directly tied to education likely lacks the expertise to effectively educate people. That doesn’t mean that they all get it wrong, if they are focused on education and apprenticeship they could be getting it right. If they are ignoring the importance of education and the expertise required then they might not be as good as they could be.

The University of Toronto is one of Canada’s most important resources

Quietly situated in the middle of North America’s 4th largest city, the University of Toronto’s St George campus houses over 90% of its ~18000 grad students. There is $1.1+ Billion in research annually. A large amount of that is medical research but what is left is still more research dollars than any 2 schools in the country that don’t have a medical school. It’s big and it is the top ranked school by all measures in the country.

What this means is that it attracts some of the best talent in the world. That talent has direct ties to major international cities and the campus educates globally minded students. This is huge. The people there aren’t trying to be the best in Canada. They are trying to the be the best at whatever they do. Anywhere.

Compared to almost all other schools in the country there is a huge number of graduate level students in science based research (Waterloo only has ~3000 grad students in total, 1/6th of UofT). Grad students in Canada are an untapped resource. Too many employers dismiss them as over educated or inexperienced in work. They find high paying work in other countries as a result (the whole internationally connected thing kicks in).

The opportunities for founders and anyone else:

  • You will find really skilled people with deep technology expertise and global connections.
  • There is a lot of research that looks like science fiction to enhance your product or build a product around it — you just need to look.
  • Your company can attract global talent to a city that has has a world class institution. A lot of the really talented people in the world have a partner that has some interested in research.

…and so much more.

There is no single model for supporting entrepreneurs — its art not science

Once upon a time there was just Y-Combinator. Then TechStars took a version of it and then everyone seemed to think there was a single model to rule them all. That model is essentially:

  • People apply and those applications are filtered/selected and a cohort is created.
  • That cohort runs for ~12 weeks where the founders work with mentors towards a due date.
  • Demo day happens and investors compete to invest in these newly minted companies.
  • Success follows!

My more detailed views are a post when I say there is just one model that works – Y-Combinator. I still believe that. If you are going to exchange equity for coaching/training and you have a certain type of company then YC is the only place you should go.

When it comes to supporting entrepreneurship in research based institutions there is no single way to do it. I don’t think there is a single program that could or should try and take on all the different ways to do it. Why? Organizations need to focus. You can provide a single service to a certain customer base but if you try and make everyone happy you inevitable be mediocre at everything.

University of Toronto is the only example I know of that has many different programs being delivered by many different ‘owners’ that have absolute control over how that program is run. That allows them to focus on their areas and deliver the best possible program. There may be some overlap and there may be some mistakes but no one really knows how this is done so the experiments are invaluable and should be watched by everyone interested in entrepreneur education/support.

Overall

I am really excited about the future of entrepreneurship in Canada. I don’t think anyone yet knows how or if there there is a common model to educate entrepreneurs in higher education. We do know many different ways that work and lots of others that don’t work as well. It is an exciting problem that I have worked on for nearly 10 years – I will continue to support entrepreneurship but in different ways.

The Role that Education Institutions play in Entrepreneur Education

The role education plays in entrepreneurship is a discussion built on the assumption that entrepreneurship is a skill that can be developed. I believe entrepreneurship is a label we place on the human ability to organize, develop tools, and collect resources to survive.

Being taught to have the confidence and ability to effectively apply those skills in a business sense may not suit everyone’s interests but you can be taught how to better leverage your ability in a business situation. Few will ever be truly great entrepreneurs but most can be happy and make a living being an entrepreneur.

If you accept it is a skill that can be developed then the tough questions to ask are: Who can teach it? What role do education institutions have in the development of entrepreneurs? Do we need more resources? Does education need to change?

In October I participated in the Quebec City Conference – a gem of a conference that focuses on venture capital, policy, and supporting companies. I found myself in a room with a number very smart an accomplished educators (this includes a number of other experienced Directors of programs, VCs, academics, and founders) of entrepreneurship in Canada we covered the topic of the role of education in entrepreneurship.

When I left the room I was left thinking that opinions over education and entrepreneurship are shaped by their understanding of what education is (or isn’t). A lot of people only have the perspective of a student in education and they are focused on the classroom only.

I think education institutions as a whole have a general set of responsibilities:

  • Teach people how to learn.
  • Create an environment where students can explore their interests and develop expertise.
  • Through education and research, develop civic minded citizens — otherwise what is the public interest in funding it?

Entrepreneurship education is something that is being discussed specifically like it is something different and special. I think there are three key areas that people are currently lumping into one:

  • Developing companies and supporting founders as they begin the journey by providing space and/or specifically designed extra-curricular programming.
  • Developing students knowledge and skills to either build their own company or succeed at being an employee in an early stage company, otherwise known as (build your own) career preparation as part of their formal education.
  • Intellectual property (or research) commercialization

The three key areas require different things and are measured by different metrics but at the same time are deeply dependant on one another to be successful. I am highly skeptical that a single ‘program’ or department could do all three well. I also think higher education by its design was already doing all three but their core business metrics don’t allow them to focus on it.

Whatever the solution is in higher education with regards to entrepreneurship education it must be anchored in its responsibilities as an education institution. To me that means the outcome is a culture shift — the environment needs to support people that want to build businesses and the people at those institutions need to be incentivized to support the people and the activities around building businesses.

Culture shifts are harder than creating a program. They take longer than election cycles and my guess is that they are a reflection of the culture in the broader community. They talk of education as a whole needs to focus less on the belief that education is broken and focus more on what is working and how to make it better.

Entrepreneurs should avoid the ‘pitch competition theatre’

Early stage entrepreneurs have countless opportunities to stand up in front of a crowd, pitch their idea, and receive feedback. They usually do this for a cash prize and the chance to raise awareness about their product. I have known more than a few founders that raised prize money as a way to get started. It is really hard to argue against that. But I will.

Not once, that I can recall, have I seen a company receive funding because they only had an awesome pitch. Good companies receive funding. Good pitches might be associated with good companies but I think what makes that pitch good is the byproduct of the founders knowing (or have a good idea) who their customer is and why their customers care about the product.

The number of pitching workshops, pre-program pitches, events that celebrate the pitch, and ‘how to raise money’ workshops makes first-time entrepreneurs think that is where they should spend their time. None of that is validation of your product (but it might feel like it is). The validation comes from customers. Spending time in workshops and events celebrating being an entrepreneur might feel good but I don’t think a founder has any time left to get to know their customers. That is a mistake.

If you spend all that time getting to know who your customer is, learn what makes them excited and what makes them frustrated, your pitch will write itself. You will know the story that resonates with people and that confidence will follow you on stage.

A great pitch is not your business plan, your financials, and how well you know your competitors. Those can be important things to keep on top of but I don’t think a founder gains anything by spending so much time with people that haven’t actually invested in that founder’s success.

You only have so many hours in a day. You should spend it on the most important things: family, team, customers, sleep. If you have time left over there is nothing wrong in getting some judges to award you money.

Theory: Wearable tech (hardware) company is a software company

There has been an explosion of interest in wearable tech or hardware companies in general lately. From meetup groups to accelerators specializing in hardware to a playbook for wearable tech on TechCrunch, everyone is trying to figure out if this new trend is a big new opportunity or at the very least a fad to capitalize on.

I have the following theory:

Wearable tech (or hardware) is connected physical (usually plastic) user interfaces (input devices) to web based software or apps that try to be more a sticky (or natural) way to input useful data and/or interact with software on a mobile device (phone). Without advanced software, there is no value in the hardware.

Wearable Tech solves a problem with web based software — you have to use a mouse (or touchscreen) and keyboard to input data. Phones are better than laptops or desktops as they are more portable but essentially they aren’t ideal. Popular apps like Foursquare which can be incredibly useful to both marketers and customers have been limited because ‘checking in’ has a terrible workflow.

I have to pull out my phone, open an app, type or tap on stuff, then put it back in my pocket.

Why can’t my phone stay in my pocket? Enter Pebble. In the very early days Eric would insist that people really don’t want to pull out their phones every time they wanted to check why it was buzzing. A quick glance at a watch would be a huge improvement. A lot people agreed (I love my Pebble).

What Pebble (and other wearable tech) can do is create that sensor enabled connection and data collection/consumption that is a more natural or low cost interaction. It still requires software. In fact it should be built on software that adds value and the hardware is the sticky part people can’t live without.

Nike Fuel Band, Fitbit, etc.

Update April 21, 2014: There isn’t a lot of information yet but it appears Nike is at least scaling back its Fuel Band and focusing on software. Not sure that should be taken as failure but rather pointing towards the fact this class of wearable tech is experimental. The band wasn’t Nike’s core product but it has allowed them to understand how sensors, software, and their shoes can interact with customers.

Hardware companies that ignore the software and overall User Experience (UX) are in trouble

RIM (or Blackberry) is an easy example to pick on but if you think about it they gained popularity not because they had great hardware but the way Blackberry OS manages messages is arguably still ahead of everyone else. Apple focused the overall UX parts that RIM didn’t focus on: how the customer interacts with the brand, device appearance, apps, carrier billing, photos, and music. For managing messages iOS is still terrible. But the entire User Experience is important.

For upstart hardware companies the UX is super important and should not be ignored. Just because your hardware does something novel does not mean someone will buy it (and use it). Your hardware interacts with software and you need to think about how that happens, always.

Companies like Kiwi are offering products that will enable hardware companies to spend more time figuring out the UX than how to get working hardware prototypes. More useful tools are on the horizon.

There are a lot opportunities in wearable tech and the internet of things

The number of hardware companies that are in trouble because their software only runs on their hardware and isn’t networked is a lot. The opportunities created by having a very powerful and connected ‘brain’ in a phone changes the focus to the UX advantages you can design, the software to enhance that, and spend far less time on extremely complex (and costly) development of hardware that needs to do everything. The low hanging fruit in wearable tech and hardware is building the software that lets you use your phone as the brains behind an array of sensors.

Also, what is being missed in all this hype is that things like hearing aids are the original “wearable tech” and the technology built into them along with how they get to consumers is way ahead of everyone entering the space now. Highly advanced devices in the larger medical space are likely where the big wins are going to be. 

The first round of wearable tech was medical. Then the landscape changed with powerful mobile computing devices (phones). This next round is about people building highly advanced hardware that connects to software for something with more than an incremental improvement in User Experience.

Advances in connected devices brings us one step closer to ubiquitous computing. Exciting times!

The Market for Credit and Supporting Entrepreneurs

Over the last few years of growth in Accelerator or Incubator programs, the overall media coverage of early stage tech startups has increased in Canada. The lack of coverage before the programs existed made media coverage a metric of success. For any entrepreneur support program to be relevant there is a requirement to be mentioned in the media resulting in the Alumni Success Metric as a key metric used to identify success of any program.

I think we need to find a better way to measure these programs and the effect on the problem they are solving.

As more and more programs compete on this metric they spend more on marketing to rise above the others which results in an increase in the costs to deliver a program. I believe competing on this metric can foster animosity between programs and hurts collaboration between a large number of extremely talented people.

What is the problem?

Founders are taking advantage of everything offered to them (as they should) which results to this common scenario in Canada (not based on any particular company).

  • Founders went to University of Toronto (and/or Waterloo and/or Ryerson and/or WLU and/or insert school here) and worked out of Banting and Best (and/or the Garage and/or the DMZ and/or any coworking space).
  • Someone else on the team took a pre-accelerter or some other community education program.
  • They are clients of MaRS and Communitech and Halton Innovation and…
  • OCE has awarded them a grant., MaRS IAF will invest in them, IRAP might have had a role.
  • They might get into another accelerator program before they finally get a few key investors at the table and start to grow.

When they get VC funding or something big worth a media push, what happens? Up to 10 organizations want to be listed and each of them release a story about how proud they are. Few if any list the other organizations or programs or people that helped (because the list is huge).

How this may hurt entrepreneurs?

Funding and product announcements aren’t success, they are a milestone that is blown way up in the local media as a result of everyone getting excited (excitement is good, celebrate the good things). It is possible that the positioning of programs media releases could confuse the market that the company needs to reach.

That said, the media coverage froth is likely localized to Canadian media so it probably has no effect on where the companies market likely is: the United States.

This intense market for credit can be frustrating for everyone who delivers programs. In reality it takes a community to raise a startup. From funders that have done it before to programs designed to focus attention, lower the risks associated with getting started, and build peer groups. We should all celebrate the entrepreneur and collectively be excited there is so many people out there helping them.

The metric is good for something.

Where I think the Alumni Success Metric does work is that helps inspire new founders. Knowing that good things have happened for those that come before them in the same program is the same metric Higher Education uses to recruit undergraduate and graduate students.

How do we avoid the zero sum game around credit?

The metric is not useful for defining the success of any program as most of the support happens in parallel in accelerators or incubators. It is extremely difficult to know what helped and when and where or what made the difference. It creates something for programs to compete over when they should be collaborating.

The stories about companies growing shouldn’t be “x program’s y company has done z” but instead be about how the company achieved this milestone and all the people that helped along the way.

A metric needs to exist that can demonstrate how effective a program is without having each program battle it out with marketing.

Step #1 is that we have to stop thinking of service organizations or accelerators or incubators as startups. They aren’t. They are philanthropic organizations offering a support group and networking services for founders, funders, and service providers.

The main goal is not to build sustainable models around these organizations (how can most realistically generate revenue outside of an education or philanthropic model?) but build a sustainable ecosystem that doesn’t require the current level of philanthropic support. Every philanthropic organization should hope that one day the problem they are solving is no longer a problem. That should be no different with supporting entrepreneurs and everyone should work together to achieve that outcome.

The “Tech Cluster” discussion must include Hamilton

There is no doubt in my mind that when we are talking about tech in Canada and the future of the economy, Toronto and Waterloo will play a big role. It is one big ecosystem and it’s growing. There are some limitations to this growth and the big scary one is the relative lack of transportation infrastructure west of the Halton Region. This problem is making people choose between communities which isn’t good for growth.

A recent Huffington Post article where I was featured highlights the problem for technology (and just about any sector really) jobs. For myself I work in Toronto where there is a much larger concentration of research (17 000 grad students, $1.2B in research at UofT alone) which is important for me as I am constantly looking for founders with the potential to build scalable companies. With four kids the quality of life that I would like for my kids would be hard to provide in Toronto.

The quality of life issue is something that can be overcome by living in a lot of different communities outside of Toronto. You can have better access to and from Toronto to areas that have a similar quality of life as Waterloo in almost every direction away from Toronto but not west of Halton Region. Those other communities are 45-60 min train ride which is just another 15-30 min over the average commute if you live in Toronto.

The discussion on tech ecosystems has shifted from Waterloo or Toronto to a larger technology cluster of Toronto AND Waterloo — which is great! The problem, I think, is that only talking about Waterloo and Toronto for technology is limiting the stories being told of the amazing technology companies that exist in a broader cluster around Toronto.

If you are going to talk about a Technology cluster in Ontario it can’t be just about Waterloo, it must include the QEW corridor down to Niagara and it should put more emphasis on Hamilton. This area includes the regional municipalities of Halton, Hamilton, and Niagara (could also include Woodstock, Brant county, and Brantford). Combined they account for roughly 1.6 million people — nearly half the population is in Hamilton and it has the largest urban centre outside of Toronto in the south of the province. 

The conversation has to expand as I think it limits the economic growth by cutting off the story telling in the broader ‘technology’ sector. If all we talk about is Waterloo or Toronto we are distracting people from all the opportunity in a very broad area. Research, Software, and Hardware will be sprinkled around seeding growth everywhere. We also need to talk about and support the next evolution of technology manufacturing otherwise this resource rich country will keep exporting raw materials and be reliant on other countries to build our products.

This is not a zero-sum game.

Founders, do not apply to that accelerator

It is that time of year again when all the accelerators start recruiting heavily for their new cohorts. Out they go looking for some great founders that ideally have some momentum already and the accelerator can take 5-10% of your company for $25-50k. They will market you, they will promote you, you will meet dozens of well intentioned people trying to help, and they will make you feel special.

But here’s the thing the accelerators won’t tell you… you can get all of that for free. What you have to do: build your company, focus on growth, and earn access to a trusted network that can apprentice under along your journey.

It will take 2-5 years to build your company.

You will hate it and love it.

It’s lonely building something even though you are surrounded by passionate people.

You don’t think you can do that on your own? You don’t know where to start? Start with customers. Start with reaching out to founders of similar companies that have exited or are doing something else. Don’t ask for money, ask for their time. Prove to them you can be coached and can move. Amazing things will happen next.

Only apply to an accelerator if it is a strategic move. It is crazy to give up that much equity unless you are absolutely sure you will get a return on that investment.

Remember: getting funded is not validation, getting accepted to an accelerator is not validation, and winning some prize is not validation. There is a lot to be said for natural growth. Customers paying for your product or service are. Focus on that instead of all the applications that will be tempting you over the next 6 months.